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Formulas - All chapters - Corporate Finance

Corporate Finance (Aarhus Universitet)

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Chapter 2

Accounts Receivable Days = Accounts Receivable / Average Daily Sales

Accounts Payable Days = Accounts Payable / Average Daily Sales
Cash Ratio = Cash / Current Liabilities
Change in Stockholders Equity = Retained Earnings + Net sales of stock
Change in Stockholders Equity = Net Income - Dividends + Sales of stock - Repurchases of stock
Current Ratio = Current Assets / Current Liabilities
Debt to Capital Ratio = Total Debt /( Total Equity + Total Debt)
Debt-Equity Ratio = Total Debt / Total Equity
Debt-to-Enterprise Value Ratio = Net Debt / (Market Value of Equity + Net Debt)
Debt-to-Enterprise Value Ratio = Net Debt / Enterprise Value
EBITDA = EBIT + Depreciation and Amortization
Enterprise Value = Market Value of Equity + Debt - Debt
EPS = Net Income / Shares Outstanding
Gross Margin = Gross Profit / Sales
Inventory Turnover = Annual Cost of Sales / Inventory
Market Value of Equity = Shares outstanding*Market price per share
Market-to-Book ratio = Market value of equity / Book Value of Equity
Net Debt = Total Debt - Excess Cash & Short-term Investments
Net Profit Margin = Net Income / Sales
Operating Margin = Operating Income / Sales
P/E ratio = Market Capitalization / Net Income
P/E ratio = Share price / Earnings per Share
Quich Ration = (Cash & Short-term Investments + Accounts Receivable) / Current Liabilities
Retained Earnings = Net Income - Dividends
ROA = (Net Income + Interest Expense) / Book Value of Assets
ROE = Net Income / Book Value of Equity
ROIC = EBIT (1 - tax rate) / (Book Value of Equity + Net Debt)
ROE = (Net Income / Sales) * (Sales / Total Assets) * (Total Assets / Book Value of Equity)
The Balance Sheet Equation = Assets = Liabilities + Shareholders’ Equity
Equity Multiplier (book) = Total Assets / Book Value of Equity
Equity Multiplier (market) = Total Assets / Market Value of Equity

Chapter 3

Expected return of a risky investment = Expected gain at end of year / Initial cost
NPV = PV(Benefits) - PV (Costs)
NPV = PV(All projects cash flow)
NPV (Buy security) = PV (All cash flows paid by the security) - Price (Security)
NPV (Sell security) = Price (Security) - PV (All cash flows paid by the security)
Price(Security) = PV (All cash flows paid by the security)
r_s = rf + (risk premium for investment s)
Return = Gain at End of Year / Initial Costs

Chapter 4

C (load or annuity payment) = P / ((1/r)*(1-(1/(1+r)^n)))

FV = C * (1+r)^n
FV_n (cash flow stream) = PV * (1+r)^n
FV_n (cash flow) = C*(1+r)*(1+r)*...*(1+r)=C*(1+r)^n
FV(annuity) = C/r * (1-(1/(1+r)^n)) * (1+r)^n

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IRR (growing perpetuity) = (C/P) + g

IRR (with two cash flows) = ((FV/P)^(1/n))-1
PV (C in perpetuity) = C/r
PV (cash flow stream) = C_0 + C_1/(1+r) + C_2/(1+r)^2 + ... + C_n/(1+r)^n
PV (growing perpetuity) = C / (r-g)
PV (growing perpetuity) = C / (r-g) * (1-((1+g)/(1+r)^2))
PV (perpetuity) = C/(1+r) + C/(1+r)^2 +C/(1+r)^3 + ...
PV (with g) = C / (1+r) + (C*(1+g))/((1+r)^2) + (C*(1+g)^2)/((1+r)^3) + ...
PV_n (cash flow) = C / (1 + r)^n
PV(annuity of C with interest rate r) = C * 1/r * (1-(1/(1+r)^n))
PV(annuity of C) = P - (P/(1+r)^n)

Chapter 5

(1+EAR) = (1+(ARP/k))^k
(1+EAR) = e^ARP
ARP = ln(1+EAR)
Equivalent n-Period Discount Rate = ((1+r)^n) -1
Growth in Purchasing Power = (1+r) / (1+i)
Interest Rate (compounding period) = ARP / (k_periods/year)
PV = C_n / ( 1+r_n)^n
r (real) = (r-i) / (1+i)

Chapter 6

CPN = (Coupon Rate * Face Value) / Number of Coupon Payments per Year
P = FV / ((1+YTM)^n)
P = CPN * (1/y) * (1-(1/(1+y)^n)) + (FV/(1+y)^n)
P (coupon bond) = (CPN / 1 + YTM_1) + (CPN /( 1 + YTM_2)^2) + … + ((CPN+FV)/(1+YTM_n)^n)
r_n = YTM
YTM = ((FV/P)^(1/n))-1
YTM = (FV/P) - 1

Chapter 8

After-Tax Cash Flow from Asset Sale = Sale Price - (t * Gain on Sale)
Book Value = Purchase Price - Accumulated Depreciation
Free cash flow = (Revenues - Costs - Depreciation) * (1-t) + Depreciation - CapEx - ∆NWC
Free cash flow = (Revenues - Costs * (1-t) - CapEx - ∆NWC + t * Depreciation
Gain on sales = Sale Price - Book Value
Income Tax = EBIT * t
Net working capital = Current assets - Current liabilities
Net working capital = Cash + Inventory + Receivables - Payables
PV(FCF) = FCF / (1+r)^t
PV(FCF) = FCF * (1/(1+r)^t)
Unlevered Net Income = EBIT * (1-t)
Unlevered Net Income = (Revenues - Costs - Depreciation) * (1-t)

Chapter 9

Change in earnings = New investment * Return on new investment

Div_t (dividend payout rate) = (Earnings / Shares Outstanding) * Dividend Payput Rate

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Earnings growth rate = Change in earnings / earnings

Forward P/E = P_0/EPS_1
Forward P/E = (Div_1/EPS_1)/(r_e-g)
Forward P/E = Dividend Payout Rate / (r_e - g)
g = Retention rate * return on new investment
New investment = Earnings * Retention Rate
P_0 (constant growth) = Div / ( r_e - g )
P_0 (constant long-term growth) = (Div_1/(1+r_e)) + (Div_2/(1+r_e)^2) + … + (Div_n/(1+r_e)^n) + (1/(1+r_e)^n) * Div_(n+1)/(r_e-g
P_0 (discounted free cash flow) = (V_0 + Cash_0 - Debt_0) / Shares outstanding_0
P_0 (dividend discount) = (Div_1/(1+r_e)) + (Div_2/(1+r_e)^2) + … + (Div_n/(1+r_e)^n) + (P_n/(1+r_e)^n)
P_0 (multiple year) = (Div_1/(1+r_e)) + ((Div_2+P_2)/(1+r_e)^2)
P_0 (one year) = (Div_1 + P_1) / (1+r_e)
P_0 (total payment model) = PV (future total dividend and repurchases) / Shares outstanding
P_n = Div_(n+1)/(r_e-g)
r_e = (Div + P_1) / P_0
r_e (constant growth) = (Div_1 / P_0) + g
V_0 (continuation) = (FCF_1/(1+r_wacc)) + (FCF_2/(1+r_wacc)^2) + … + ((FCF_n+V_n)/(1+r_wacc)^n)
V_0 (discounted free cash flow) = PV (future free casg flow of firm)
V_0(enterprise) = FCF/(r_wacc-g_fcf)
V_n (continuation) = (FCF_(n+1)/(r_wacc-g_fcf))
V_n (continuation) = ((1+g_fcf)/(r_wacc-g_fcf))*FCF_n

Chapter 10

E(R) = sum(Pr.*R)
1 + R_annual = (1+R_q1) * (1+R_q2) * (1+R_q3) * (1+R_q4)
Cov(Ri,Rj) = E((Ri-E(Ri)*(Rj-E(Rj))
Cov(Ri,Rj) = (1/(t-1)) * sum(Ri-Ri_average) * (Rj-Rj_average)
E (Rp) = E (sum(xi*Ri))
Market Risk Premium = E(R_market) - rf
r_i (cost of capital) = rf + β * (E(R_market) - rf)
R_p (weighted average) = (x_1*R_1) + (x_2*R_2) + … + (x_n*R_n)
R_t+1 = ((Div_t+1 + P_t+1) / P_t) - 1
R(average) = (1/t) * (R_1+R_2+ … +R_t)
SD(average) = SD (Individual Risk) / (number_of_observation^0,5)
SD(R) = Var(R)^0,5
SD(Rp) arbitrary weights = sum( x * (SD/Ri) * corr(Ri, Rp) )
Sharpe ratio = (E(Rp)-rf)/SD(Rp)
Var(R) = E((R-E(R))^2)
Var(R) realized returns = (1/(t-1)) * sum( R_t - R_average)^2
Var(Rp) large portfolio = (1/n) * average_variance
Var(Rp) two stock = x1^2*Var(R1) + x2^2*Var(R2) + 2*x1*x2*Cov(R1,R2)
x_i (portfolio weights) = Value of investment i / total value of portfolio
βi^p = (SD(Ri)*corr(Ri,Rp))/SD(Rp)

Chapter 12

Effective after tax interest = r*(1-t)

Net debt = Debt - Excess cash and short term investments
r_u (unlevered) = ((E/(E+B)*r_e)+((D/(E+B)*r_d)
r_wacc = ((E/(E+B)*r_e)+((D/(E+B)*r_d*(1-t))
r_wacc = r_u-(D/(E+D))*t*r_d

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β_u (unlevered) = ((E/(E+B)*β_e)+((D/(E+B)*β_d)

Chapter 14

EPS = Earnings / Number of shares

MarkV_E = MarkV_A - MarkV_Liabilities
r_e = r_u + ((D/E)*(r_u-r_d))
β_e = β_u + ((D/E)*(β_u-β_d))

Chapter 15

Cash flow to investors with leverage = Cash flow to invester with leverage + interest tax shield
Interest tax shield = Corporate tax rate * interest payments
Market value of debt = PV (future interest payments)
PV (Interest Tax Shield) = (t*interest)/rf
PV (Interest tax shield) = t * Future Interest payments
PV (Interest Tax Shield)_perpetual = D * t
r* (effective tax advantage of debt) = ((1-t_i)-(1-t_c)*(1-t_e))/(1-t_i)
T_ex* = 1-((1-t_e)/(1-t_i))
V_L = V_U + PV(Interest Tax Shield)
V_L = V_U + (r * D)

Chapter 16

V_L (agency) = V_U + PV(Interest Tax Shield) - PV(Financial Distress Costs) - PV(Agency Costs of Debt) + PV(Agency Benefit
V_L (optimal) = V_U + PV(Interest tax shield) - PV(Financial Distress Costs)

Chapter 17

Div = 100*rf*(1-t)
Div*(1-t) = (P_cum - P_ex)*(1-t_g)
P_cum = P_ex + div_0 * ((1-t_d)/(1-t_g))
P_retain = (Div*(1-t_d))/(rf*(1-t_i))
t_d* (effective dividend t) = (t_d-t_g)/(1-t_g)
t_retain = 1-(((1-t_c)*(1-t_g))/(1-t_i))

Chapter 18

V0_L = (FCF_1/(1+r_wacc)) + (FCF_2/(1+r_wacc)^2) + …

APV (adjusted present value) = V_U + PV(Interest Tax Shield)
Dt (debt capacity) = d * Vt_L
FCFE (Free Cash Flow to Equity) = FCF - (1-t_c) * Interest payments + net borrowing
Net borrowing at date t = D_t - D_(t-1)
PV (Interest tax shield) = t_c * k * PV (FCF )
PV(t*int_t) = ((t*int_t)/((1+r_U)^t-1*(1+r_d))
r_wacc (project) = (r_u) - (d) * (t_c) * (r_d)
V_L = (1+t*k*((1+r_u)/(1+r_d)))*V_U
V_L (interest coverage ratio) = V_U + t_c * k * V_U
Vt_L = ((FCF_(t+1) + V_(L_t+1) / (1+r_wacc))

Chapter 19

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Sales = Market Size * Market Share * Average Sales Price

Raw materials = Market Size * Market Share * Raw Materials per Unit
Sales and marketing = Sales * (Sales and Marketing % of Sales)
Income tax = Pretax Income * Tax rate
After-tax interest expense = (1 - Tax Rate) * (Interest on Debt - Interest on Excess Cash)
Net borrowing in year t = Net Debt in Year t - Net Debt in Year_(t-1)
New Stockholders’ Equity = Equity Contributions - Expensed Transaction Fees
β_U (unlevering beta) = (Equity value / Enterprise value) * β_E + (Net debt value / Enterprise value) * β_D
Continuation Enterprise Value at Forecast Horizon = EBITDA at Horizon * EBITDA Multiple at Horizon
Enterprise Value in Year T = FCF_t+1 / (r_wacc - g)
FCF_t+1 = UNI_T+1 + Depr._T+1 - ∂NWC_T+1 - CapEx_T+1
CapEx_t+1 = Depr._t+1 + g * fixed assets_t
FCF_t+1 = (1 + g ) * UNI_t - g * NWC_t - g * Fixed_assets_t
V_U_t-1 = (FCF_t + V_U_t) / (1 + r_u)
Ts_t-1 = (Interest Tax Shield_t + T_s_t) / (1 + r_d)
Cash Multiple = Total Cash Received / Total Cash Invested

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